Crisis? What Crisis?

  |  June 2, 2008   |  Comments

Internet ad industry will ride high on economic downturn, says IDC.

The weary old cliché might be true after all: Every cloud does have a silver lining, especially if you're involved in Internet marketing and advertising.

If the cloud in question is the current sluggish economy, the silver lining is the way that all the doom and gloom is affecting the online ad world, according to the latest research by IDC. The company's analysts contend the economic downturn is actually helping the Internet marketing industry as businesses re-allocate ad budget money.

According to a summary of IDC's new "U.S. Internet Advertising 2008-2012 Forecast and Analysis: Defining Economic Crisis," Internet advertising will boom during the coming years despite a general "contraction in ad spending overall." IDC believes overall Internet advertising revenue will double from $25.5 billion in 2007 to $51.1 billion in 2012, reflecting a compound annual growth rate of 14.9 percent.

The company predicts the Internet's share of the overall U.S. advertising market will increase from 8.6 percent to 15.6 percent during the period and will be second only to direct marketing by 2012, blowing past broadcast television and newspapers along the way.

"Even though spending on advertising overall will contract this year, spending on Internet advertising still increases," said IDC Program Director, Digital Media and Entertainment Karsten Weide, who authored the new report. "What that means is that advertisers are accelerating moving budgets out of the old media and into the new."

IDC believes search ads will remain at the top of the Internet ad hierarchy with revenue, pegged at $10.4 billion last year, to reach almost $18 billion in 2012. But search will lose a bit of its market share as other formats, primarily video, gain ground. IDC believes search, now having almost 41 percent of the market share, will have just above 34 percent by 2012.

Video will gain at the expense of broadcast TV advertising, said Weide. His report says online video ad spending will grow from about $500 million in 2007 to $3.8 billion in 2012 and its Internet advertising share will expand from 2 percent to 7.4 percent. "The Internet now is capable of delivering actual video for a majority of consumers and people are embracing it with a vengeance," said Weide.

Referral and lead-generation services will see the second strongest market share gain, after video, "as some search advertisers move budgets from search into the more effective and accountable lead/referral services." IDC believes revenue from referral and lead generation services will grow from $2.3 billion in 2007 to $5.9 billion in 2012.

Mobile advertising will also show robust growth but the segment will still have "just shy" of 1 percent of the overall online ad market by 2012.

"The economic crisis is accelerating this," said Weide. "When there's an economic crisis, the first place companies look to save money is marketing. The marketing people are now under a lot of pressure to deliver the same amount of exposure for less money."

He said marketers love the way the Internet, unlike most other forms of advertising, fosters interactivity and real consumer engagement along with deep tracking capabilities.

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